In order to receive $12,000 at the end of three years and $10,000 at the end of five years,how much must be invested now if you can earn 14% rate of return?
A) $8,100.
B) $12,978.
C) $13,290.
D) $32,054.

Question

Quizplus · Accepted Answer

To calculate the present value, we need to use the formula:

Present value = Future value / (1 + r)^n

Where r is the rate of return and n is the number of years.

For $12,000 at the end of three years, we have:

Present value = 12000 / (1 + 0.14)^3
Present value = 8075.22

For $10,000 at the end of five years, we have:

Present value = 10000 / (1 + 0.14)^5
Present value = 5188.58

The total present value required is the sum of the two present values:

Total present value = 8075.22 + 5188.58
Total present value = 13263.80

Therefore, the amount that must be invested now is $13,290 (closest to the answer C).

In Order to Receive $12,000 at the End of Three